Earlier, she had said that she wished to give the Sparks salary headroom to build a team around her. But she told Franklin that she also wished to avoid the California income tax that would kick in the moment her salary hit $1 million.<\/p>\n
At that level, she said, she would become subject to the state\u2019s top tax rate of 13%, so the additional dollar would cost her $13,000. (Actually, the top rate is 13.3%, so $13,300, but never mind.)<\/p>\n
Cue the tsunami of ridicule coming from self-appointed tax experts, who informed her online that the 13% is a marginal rate, meaning that it\u2019s applied only to taxable income above a certain threshold such as $1 million, not to one\u2019s entire income.<\/p>\n
The Spun, a sports blog, flayed Plum for her \u201cembarrassing lack of tax knowledge<\/a>.\u201d A sports business blogger named Joe Pompliano\u00a0appealed for someone to \u201cplease explain marginal tax rates to\u00a0Kelsey Plum<\/a>,\u201d and asserted that the one extra dollar would cost her not $13,000, but 13 cents.<\/p>\n As it happens, both the Spun and Pompliano also got the tax calculation wrong, as have others. More on that in a moment.<\/p>\n First, since many of us are still feeling the pain from the\u00a0April 15\u00a0tax deadline, here\u2019s a primer on marginal tax rates as a thing.<\/p>\n Marginal rates are what give us\u00a0tax brackets<\/a>\u00a0and make the\u00a0U.S.\u00a0tax system progressive\u2014that is, putting a bigger proportionate bite on higher incomes.<\/p>\n For the current tax year, for example, couples earning up to $24,800 in taxable income will owe 10% of it in federal personal income tax. Those in the next bracket, up to $100,800, will pay 12% on that additional tranche, 22% on any additional income up to $211,400, and four higher percentages on four further chunks of income, topping out at 37% on everything above $768,701.<\/p>\n You might hear the wealthy and their cat\u2019s-paws in\u00a0Congress\u00a0whining about paying a 37% tax, but that\u2019s the rate only on the top tranche. By my back-of-the-envelope calculation, under this system the overall federal rate on a taxable income of $1 million would come to a rate of about 29%.<\/p>\n California, where Plum presumably files, has nine tax brackets ranging (in 2025) from income below $22,158 for couples (rate of 1%) to $1.486 million and above (12.3%); the 1% surcharge on income over $1 million brings the rate on those taxpayers to 13.3%.<\/p>\n This can be confusing even to people steeped in tax policy, but the confusion frequently has been weaponized by anti-tax warriors to make taxes seem even more onerous than they are.<\/p>\n \u201cThe failure of so many people to understand the basic facts about marginal tax rates,\u201d observes\u00a0Scott Lemieux\u00a0of\u00a0the Lawyers, Guns & Money group blog<\/a>\u00a0and the\u00a0University of Washington\u00a0(where Plum got her degree), \u201cis one of those little pockets of ignorance that manufacture Republican voters.\u201d<\/p>\n We saw that process in full cry in 2019, when\u00a0Alexandria Ocasio-Cortez, then a newly minted Democratic congresswoman from\u00a0New York, went on \u201c60 Minutes\u201d and proposed raising the top federal rate on the wealthiest Americans to as much as 70% from 37%.<\/p>\n As\u00a0I wrote at the time<\/a>, \u201cConservative heads exploded.\u201d Then-House Minority\u00a0Whip Steve Scalise\u00a0(R-La.) accused AOC on Twitter of wanting to \u201ctake away 70% of your income<\/a>\u00a0and give it to leftist fantasy programs.\u201d Right-wing anti-tax crusader\u00a0Grover Norquist\u00a0implied<\/a>\u00a0that the \u201cexpropriation\u201d of 70% of \u201cyour production\u201d was coming uncomfortably close to \u201cslavery.\u201d<\/p>\n This was, I wrote, part of an effort by\u00a0Republicans\u00a0and conservatives to smear AOC \u201cas a know-nothing socialist ditz unfit to sit in the House chamber with all those gray-bearded sages who have made the House such a model of reasoned and informed debate.\u201d<\/p>\n It wasn\u2019t clear whether Scalise, Norquist and AOC\u2019s other critics understood that she was talking about a marginal rate of 70%, or whether they themselves understood the difference between an overall rate and a marginal rate and were only gaslighting their own followers. During the interview and on-camera, AOC made it quite clear that she knew the difference: She noted to her interviewer,\u00a0Anderson Cooper, that her proposal \u201cdoesn\u2019t mean all $10 million are taxed at an extremely high rate.\u201d<\/p>\n On the air, Cooper (a scion of the Vanderbilt family, by the way) called her proposal part of \u201ca radical agenda.\u201d But it was hardly as radical as all that.<\/p>\n The top marginal rate in the\u00a0U.S.\u00a0was\u00a070% from 1965 to 1981<\/a>, a period that covers the presidencies of Lyndon Johnson,\u00a0Richard Nixon,\u00a0Gerald Ford\u00a0and\u00a0Jimmy Carter, and for most of that period that rate was applied to incomes starting at about $200,000; that much income in 1981 dollars is the equivalent of about $760,000 today.<\/p>\n Going further back, the top rate was 91% from 1946 to 1963 (the Truman, Eisenhower and Kennedy years), applied to incomes of $400,000 or more. That income in 1963 had the buying power of $4.3 million today. Those years included periods of unexampled prosperity and the growth of a strong middle class in\u00a0the United States. The rich kept working and creating jobs, somehow.<\/p>\n That brings us back to\u00a0Kelsey Plum. Even Plum\u2019s defenders, not to mention her critics, plainly didn\u2019t make the effort to read the relevant California law, so they got it wrong themselves.<\/p>\n It\u2019s the\u00a0California Mental Health Services Act,<\/a>\u00a0which voters passed in 2004. Designed to restore funding for (obviously) mental health services, the law imposes a 1% state tax surcharge on millionaires, bringing the marginal rate on those taxpayers to 13.3%. (I tried to reach Plum via the Sparks communications team to ask her reaction to the pile-on and who told her she\u2019d be subject to $13,000, but didn\u2019t hear back.)<\/p>\n But the surcharge kicks in at income over $1 million. In other words, if Plum accepted a contract paying $1 million rather than $999,999, her additional tax wouldn\u2019t be $13,000, or even 13 cents. It would be zero. If she were paid, say, $1,000,001, then she\u2019d be subject to the surcharge, which would come to 13 cents.<\/p>\n Andrew Holleran, the editor of the Spun and author of the article about Plum, told me he plans to run a correction. Pompliano, to his credit, pointed out in his post that it\u2019s unlikely that Plum\u2019s total income is only $999,999, given the availability of endorsement income and other ancillary deals. So she\u2019s probably subject to the California millionaires tax even after depriving herself of an extra dollar.<\/p>\n One would hope that a star athlete would have professional help preparing her taxes and advising her on contract terms. But given how often marginal rates are misunderstood, perhaps that wouldn\u2019t help. But now you know.<\/p>\n Photo credit:<\/strong> Kelsey Plum (@kelseyplum10)\/Instagram<\/p>\n ______<\/p>\n \u00a92026 Los Angeles Times. Visit\u00a0latimes.com<\/a>. Distributed by\u00a0Tribune Content Agency LLC.<\/p>\n Sign in to get access to this free resource, and all of our whitepapers and reports.<\/p>\n \t\t\t\t\t \t\t\tDownload this content today!<\/strong><\/p>\n Register to get free access to this content, as well as newsletters, continuing education, podcasts, and more\u2026<\/p>\n \n\t\t\t\t\t\t\t \n\t\t\t\tRead the FAQs<\/a>\n\t\t\t<\/p>\n ![\"](\"https:\/\/www.cpapracticeadvisor.com\/wp-content\/uploads\/CPAPA-Logo.svg\"){kind=logo}
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